The National Company Law Appellate Tribunal (“NCLAT”) in the case of Bimalkumar Manubhai Savalia v. Bank of India and Another (decided as per order dated March 05, 2020) has held that proceedings filed in the Debt Recovery Tribunal (“DRT”) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) or for recovery of debts due to banks and financial institutions will not extend the period of limitation under the Insolvency and Bankruptcy Code, 2016 (“IBC”).

Facts

This matter reached the NCLAT by an appeal filed by the shareholder and director (“Appellant”) of the corporate debtor M/s. Radheshyam Agro Products Private Limited (“RPL”) against an order dated September 20, 2019 (“Impugned Order”) passed by the Ahmedabad bench of the National Company Law Tribunal (“NCLT”) regarding an application moved by Bank of India (“Respondent No. 1”) under section 7 (initiation of corporate insolvency resolution process by financial creditor) of the IBC (“Application”). The Application had been filed on August 30, 2018 on the ground that the RPL had defaulted in repayment of a loan facility. This Application had now been admitted by the NCLT against RPL, by way of the Impugned Order.

Issue

One of the issues under consideration was whether the limitation period in respect of Application filed by Respondent No. 1 under the IBC, had been extended due to proceedings pending/ initiated in the DRT under the SARFAESI Act and debts due to banks and financial institutions.

Arguments

Contentions of the Appellant:
It was contended by the Appellant that the NCLT had not taken into consideration the objection that the Application filed was time barred.

Contentions of the Respondent:
Respondent No. 1 submitted that even though the date of default is reflected in the statutory form as November 05, 2014, the Application had been filed before the NCLT on August 30, 2018 and that such filing date was within the limitation period for reasons more detailed below. It was submitted that the Appellant had filed an application under Section 17 (right to appeal) of SARFAESI Act wherein, the Appellant had stated that the loan facility availed had not been repaid, which amounted to acknowledgment of debt. Further, RPL had issued a letter dated April 28, 2016 and a second letter on June 01, 2016 in pursuance of a One-time Settlement (“OTS”) offer. It was submitted that even though the expression ‘without prejudice’ was used in the letter dated April 28, 2016, the said expression was not incorporated in the second letter dated June 01, 2016.

Therefore, the second letter could also be treated as an acknowledgment of debt by RPL. It was also contended that the guarantor to RPL, had paid INR 1,26,619 and INR 1,28,645 by transferring the said amounts to RPL’s account on April 01, 2017, as per the terms of a guarantee deed. Such transfer of money by the guarantor could also be treated as an acknowledgment of debt for the purposes of limitation. Importantly, it was contended that the limitation period had been extended and consequently had started running from the date of the transfer of the aforesaid amounts by the guarantor to RPL’s account (April 01, 2017). Since the Application had been filed on August 30, 2018, the Respondent No. 1’s case had clearly fallen within the limitation period.

Observations of NCLAT

The NCLAT referred to the judgment of the Supreme Court in B.K. Educational Services Private Limited v. Parag Gupta and Associates [(2019) 11 SCC 633], to determine if the Application filed by Respondent No. 1 was within the limitation period. The NCLAT noted that the NCLT had observed that the date of mortgage was November 18, 2010. Further, it was noted that the first OTS offer was made on April 28, 2016 for INR 12 crores. Thereafter the OTS offer was revised to INR 14.56 crores on June 01, 2016. Finally, the credits had come in from the guarantor into the loan account of Respondent No. 1 on March 31, 2017. It was noted by the NCLAT that the OTS was not accepted by Respondent No. 1 therefore, this could not be treated as an acknowledgment of debt under Section 18 (effect of acknowledgment in writing) of the Limitation Act, 1963 (“Limitation Act”). The contention of Respondent No. 1 that the second letter/ revised OTS offer had not employed the expression ‘without prejudice’ and therefore, the revised OTS offer should have to be treated as an acknowledgment of debt, was negated by the NCLAT.

The NCLAT reasoned that Article 19 (effect of payment on account of debt or of interest on legacy) of the Limitation Act would apply to suits, and not to applications filed under Sections 7and 9 (application for initiation of corporate insolvency resolution process by operational creditor) of IBC. Instead, Article 137 (any other application for which no period of limitation is provided elsewhere in the third division-applications) of the Limitation Act would apply to applications under Sections 7 and 9 of IBC, as previously held by the Supreme Court. Therefore, the argument that the limitation period would be extended and consequently, counted from April 01, 2017 was negated by NCLAT.

Further, the contention of Respondent No. 1 that the Appellant’s application under Section 17 of the SARFAESI Act had admitted to non-repayment of loan facility, was to be counted as an acknowledgment of debt, for the purposes of limitation, was also rejected. The NCLAT perused the grounds of the aforesaid application, and observed that the Appellant had taken objections in the said application on technical grounds. Such technical grounds, inter alia, included non-receipt of notices as required to be served on a borrower under Section 13(2) of the SARFAESI Act. The NCLAT noted that such grounds/ objections could not be presumed to be an acknowledgment of debt by the Appellant.

Decision of NCLAT

The NCLAT referred to its judgment in C. Shivkumar Reddy v. Dena Bank and Another [(C.A (AT)(Insolvency) No. 407 of 2019], wherein it had considered the judgements of the Supreme Court in Jignesh Shah and Another v. Union of India and Another [(2019) SCC OnLine SC 1254], Gaurav Horgovindbhai Dave v. Asset Reconstruction Company (India) Limited and Another [C.A No. 4952 of 2019], and B.K. Educational Services Private Limited v. Parag Gupta and Associates, where it had held that there was nothing on record to suggest that the corporate debtor or its authorized representative had accepted or acknowledged the debt within three years from default date or from the date the loan account of the corporate debtor had been declared as a ‘non-performing asset’.

In the same vein, the NCLAT observed that in the present case, the Appellant or RPL had never issued any acknowledgment within three years from the date of default (November 05, 2014). Therefore, the limitation period was held as not having been extended and the Application filed by the Respondent No. 1 was held to be filed beyond the limitation period. Allowing the present appeal, the NCLAT set aside the Impugned Order, and released RPL from the corporate insolvency resolution process, including any actions of the resolution professional and committee of creditors.

NCLAT was of the view that the proceedings filed in DRT under the SARFAESI Act or for recovery of debts due to banks and financial institutions would not extend the period of limitation since such proceedings are independent. Further, as per Section 238 (provisions of IBC to override other laws) of the IBC, the IBC is a complete code and will have an overriding effect on other laws. Therefore, proceedings pending in the DRT, which are initiated either under the SARFAESI Act or for recovery of debts due to banks and financial institutions would not in any way extend the limitation.

Vaish Associates Advocates View

NCLAT contemplated on the applicability of the Limitation Act, as far as applications under Sections 7 and 9 of the IBC were concerned. In doing so, it held that proceedings before DRT under the SARFAESI Act or for recovery of debts due to banks and financial institutions would not extend the period of limitation under the IBC, as such proceedings were independent. Therefore, such proceedings could not be taken into consideration to extend the period of limitation under IBC.

The NCLAT also referred to the decision of the Supreme Court in B.K. Educational Services Private Limited v. Parag Gupta and Associates to reason that it was Article 137 of the Limitation Act which would apply to the applications under Sections 7 and 9 of IBC.

For more information please write to Mr. Bomi Daruwala at [email protected]

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